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[2013] NSWCA 303
Court of Appeal (NSW)
2013-07-29
McColl JA, Gleeson JA, Slattery J
Original judgment source is linked above.
Zaccardi v Caunt [2008] NSWCA 202; 15 BPR 28,403 Texts Cited: P Butt, The Standard Contract for Sale of Land in New South Wales (2nd ed, 1998) Category: Principal judgment Parties: Stephen Wayne Velik (First Appellant) Laura Allison Velik (Second Appellant) Noreen Steingold (Respondent) Representation: Counsel: S Balafoutis with DA Stretton (First and Second Appellants) M Einfeld QC with DD Knoll (Respondent) Solicitors: SV Law (First and Second Appellants) Slater & Gordon (Respondent) File Number(s): 2012/305131 Decision under appeal Citation: Stephen Wayne Velik v Noreen Steingold [2012] NSWSC 860 Date of Decision: 2012-07-31 00:00:00 Before: Slattery J File Number(s): 2010/96975
Judgment 1McCOLL JA: I agree with Sackville AJA. 2GLEESON JA: I agree with Sackville AJA. 3SACKVILLE AJA: This case between a vendor and purchasers of a residential property, represents the triumph of obstinacy over common sense. Perhaps not entirely coincidentally, the husband of the vendor is a solicitor, as is one of the purchasers. The solicitors (respectively, Mr Steingold of ERA Legal and Mr Velik of SV Law) acted for the parties on the transaction. 4The appellants ("the Purchasers") entered into a contract to purchase a residential property located at St Ives from the respondent ("the Vendor"). The purchase price under the contract of sale ("the Contract") was $1.26 million, of which the Purchasers paid the usual ten per cent ($126,000) as a deposit. 5As completion of the sale approached, the parties, who had been neighbours, entered into a dispute as to whether amounts ultimately totalling $3,132.05 should be paid to a stakeholder pending determination of the competing claims to that sum (which represented a mere 0.25 per cent of the purchase price). The Vendor insisted that the Purchasers were bound to pay this sum on completion as interest due under the terms of the Contract. The Purchasers contended that they were entitled to invoke the arbitral mechanism provided in the Contract for the resolution of claims made by them and that, in the meantime, they were entitled to have the disputed sum paid to a stakeholder. 6In consequence of the dispute, completion of the Contract did not take place on the date agreed between the parties. The Vendor and the Purchasers each purported to terminate the Contract by reason of the other's default or repudiation. The Vendor forfeited the deposit and, after some further disputation, resold the Property. The Purchasers instituted proceedings in the Equity Division of the Supreme Court seeking declaratory relief and an order for the return of the deposit paid by them. In the alternative, they sought an order for repayment of the deposit pursuant to the discretion conferred on the Court by s 55(2A) of the Conveyancing Act 1919 ("Conveyancing Act"). 7The primary Judge (Slattery J) concluded that the Vendor had validly terminated the Contract and forfeited the deposit. His Honour held that a notice to complete served by the Vendor was not effective to make time of the essence of the Contract, because it did not provide 14 clear days for completion as the Contract required. Nonetheless, his Honour held that Vendor was entitled to succeed on two bases:
The Contract 11The cover sheet of the Contract provided for the sale of the Property at a price of $1.26 million with a deposit to be paid of $126,000. The sale was expressed to be subject to existing tenancies. The "completion date" was as stated in Special Condition ("SC") 34. In the events which occurred, the completion date under SC 34 was 14 days after the Vendor served the Purchasers with a Registration Notice relating to the subdivision of land owned by the Vendor, part of which constituted the Property. 12Clause 7 dealt with claims by the Purchasers as follows: The purchaser can make a claim ... before completion only by serving it with a statement of the amount claimed, and if the purchaser makes one or more claims before completion - 7.1 the vendor can rescind if in the case of claims that are not claims for delay - 7.1.1 the total amount claimed exceeds 5% of the price; 7.1.2 the vendor serves notice of intention to rescind; and 7.1.3 the purchaser does not serve notice waiving the claims within 14 days after that service; and 7.2 if the vendor does not rescind, the parties must complete and if this contract is completed - 7.2.1 the lesser of the total amount claimed and 10% of the price must be paid out of the price to and held by the depositholder until the claims are finalised or lapse; 7.2.2 the amount held is to be invested ... 7.2.3 the claims must be finalised by an arbitrator ... 13Clause 9 dealt with default by the Purchasers as follows: If the purchaser does not comply with this contract (or a notice under or relating to it) in an essential respect, the vendor can terminate by serving a notice. After the termination the vendor can - 9.1 keep or recover the deposit (to a maximum of 10% of the price); ... 9.3 sue the purchaser either - 9.3.1 where the vendor has resold the property under a contract made within 12 months after the termination, to recover - the deficiency on resale (with credit for any of the deposit kept or recovered and after allowance for any capital gains tax or goods and services tax payable on anything recovered under this clause); and the reasonable costs and expenses arising out of the purchaser's non-compliance with this contract or the notice and of resale and any attempted resale; or 9.3.2 recover damages for breach of contract. 14Clause 15 of the Contract provided as follows: The parties must complete by the completion date and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so. 15Clause 16.7 provided as follows: On completion the purchaser must pay to the vendor, by cash (up to $2,000) or settlement cheque, the price (less any deposit paid) and any other amount payable by the purchaser under this contract (less any amount payable by the vendor to the purchaser under this contract). 16Clause 21.2 relevantly provided as follows: 21.1 If the time for something to be done or to happen is not stated in these provisions it is a reasonable time. ... 21.6 Normally, the time by which something must be done is fixed but not essential. "Normally" was defined in cl 1 of the Contract to mean "subject to any other provision of this contract". 17The "Special Conditions" to the Contract included the following: 37 Limitations on Purchaser's Rights 37.1 The Purchaser may not make a claim or requisition, delay completion, rescind or terminate in connection with anything done by the Vendor which is not prohibited under this contract other than any such things so done by the Vendor which constitutes [sic], gives rise to, or is as a result of the Vendor's failure to be ready, willing and able to complete this Contract when required to do so under or pursuant to this Contract. ... 43 Entire Agreement 43.1 The Purchaser acknowledges that it does not rely on any letter, document, correspondence or arrangement, whether oral or in writing made by the Vendor, the Vendor's Agent ... or any other person ... adding to or amending the terms, conditions, warranties and arrangements set out in this Contract. ... 52 Notice to Complete 52.1 In the event that either party becomes entitled to serve a Notice to Complete on the other party making time of the essence of this Contract both parties agree that fourteen (14) days from the date the notice is served will be reasonable both at law and in equity for completion of this Contract pursuant to the Notice. 53 Release of Deposit 53.1 Notwithstanding the provisions of Clauses 2 and 3 of this Contract the Purchaser agrees to release the deposit to the Vendor. ... 55 Liquidated Damages 55.1 In the event that completion of this Contract does not take place on the completion date, other than due to the Vendor's default, then in addition to the other rights accruing to the Vendor as a result hereof and for so long as the Vendor is ready, willing and able to complete this Contract, the Purchaser agrees that it will pay to the Vendor interest calculated at the rate of 10% per annum on the balance of purchase moneys outstanding calculated on a daily rate, such interest to be computed from the completion date until the actual date of completion of this Contract. 55.2 The parties acknowledge that the rate of interest referred to in clause 55.1 represents a genuine pre-estimate of the damages that the Vendor will suffer in the event that the Purchaser fails to complete this Contract on the completion date. 55.3 This clause is an essential condition of this Contract.
Course of Events 18In 2009, the Purchasers began living in a house on land owned by the Vendor in St Ives. The Vendor lived with her husband in another house on the same land. The Purchasers paid rent to the Vendor. 19On 4 December 2009, the Purchasers entered into the Contract to purchase the Property (on which was erected the house they were renting from the Vendor). The deposit was paid on exchange. 20The Contract provided for the subdivision of the land owned by the Vendor. Although there was a dispute concerning the manner in which the Vendor served the Registration Notice, it is now common ground that the completion date under SC 34 of the Contract was 26 February 2010. 21In a conversation on 24 February 2010, confirmed by a letter sent the following day, the Purchasers' solicitor advised the Vendor's solicitor that they would be unable to settle on 26 February 2010 "because of a last minute additional requirement of our clients' home loan lender". The letter said that the Purchasers "will only likely be in a position to complete ... on Friday week, 5 March 2010" and indicated that settlement figures should be recalculated as at that date. 22The letter of 25 February 2010 acknowledged that under the Contract (presumably SC 55.1) the Purchasers were obliged to pay interest on the balance of the Contract price from 26 February 2010 to the new date of completion. However, the letter asserted that unless the Vendor gave credit for the rental paid by the Purchasers in respect of the same period, the payment of interest would amount to double counting and would therefore constitute an unenforceable penalty. This was the genesis of the dispute between the parties. 23The Vendor's solicitor replied on 26 February 2010, confirming that settlement had been booked for 5 March 2010. The letter stated that the Vendor would serve a notice to complete pursuant to SC 52.1 of the Contract that day. In the letter, the Vendor's solicitor rejected the Purchasers' claim that payment of interest under the Contract would constitute a penalty, for these reasons: Pursuant to the provisions of [SC] 55.1 of the Contract, your client is liable to pay interest at the rate of 10% pa on the balance of the purchase monies outstanding calculated on a daily rate for the period from the completion date to the actual date of completion. We will include this calculation in the amended settlement figures. The fact that your client is also the tenant of the property and will be in possession of the property for an extra week does not in any way negate the obligation to pay interest under the Contract. The two matters are unrelated. For the record, our client is incurring interest on the balance of the purchase monies under the Contract to its own bank in excess of 8.5% pa. Further, our client has additional obligations to meet including insurance payments and other outgoings in relation to the property. 24Despite what was said in the letter, the Vendor's solicitor did not serve a notice to complete until the following Monday, 1 March 2010. The notice to complete, which was served by fax at 12.25 pm on that day, required the Purchasers to complete on or before 3.00 pm on 15 March 2010. It will be seen that the notice did not allow 14 clear days from service until the time for completion. 25On 3 March 2010, the Purchasers' solicitor advised that "[d]ue to our client's [sic] home loan funding" they were only likely to be in a position to settle on 12 March 2010. The letter stated that "as a gesture of good faith" the Purchasers would pay contractual interest on the balance of the purchase price for the extra week, to the extent that the interest exceeded the rental paid by them to the Vendor. 26On 4 March 2010, the Vendor's solicitor informed the Purchasers' solicitor that settlement had been rescheduled for 2.00 pm on 12 March 2010 and that the settlement figures would be recalculated accordingly. The letter reiterated that the obligation to pay interest was entirely independent from and separate to the obligation to pay rent. Thus the Purchasers would be required to pay interest on completion for the period 26 February 2010 to 12 March 2010. In their reply the same day, the Purchasers made no admissions and reserved their rights. 27On 10 March 2010, the Vendor's solicitor sent a settlement sheet to the Purchasers' solicitor. The amount payable to the Purchasers recorded in the settlement sheet included $4,349.59 in interest, calculated in accordance with SC 55.1 of the Contract. 28On 11 March 2010, the Purchasers' solicitor advised that they were now unable to settle on 12 March 2010, but they expected to know the next day (Friday, 12 March 2010) or the following week when settlement could take place. The letter restated the Purchasers' position on the payment of interest. The letter also asserted, for the first time, that the Purchasers disputed the validity of the notice to complete. No reasons were given for this assertion. 29The Vendor's solicitor replied at 11.51 am on 12 March 2010. The letter stated that the Vendor was ready, willing and able to settle on that same day and that she regarded the notice to complete as valid. The letter warned that if settlement did not take place by 3.00 pm on the following Monday, 15 March 2010, the Vendor would accept the Purchasers' wrongful repudiation of the Contract. 30The Purchasers' solicitor replied by fax at 2.18 pm, advising that they were now ready, willing and able to settle at 4.00 pm that day (that is, Friday, 12 March 2010). The letter reiterated the claim that the notice to complete was invalid, but still gave no reasons for this assertion. The letter included the following: [O]ur client's [sic] hereby make a claim pursuant to clause 7 of the [Contract] that your client is not entitled to $2,200.00 of the $4,349.59 interest adjustment in the said settlement figures, by reason of the said $2,200.00 being in the nature of an unenforceable penalty. Accordingly, our client's require that the said amount of $2,200.00 be retained from the deposit monies held by your client's agent in respect of the above sale until the said claim is finalised or lapses, pursuant to sub-clause 7.2 of the [Contract]. Curiously enough, when this letter was written the Purchasers' solicitor was apparently unaware that the deposit had been released to the Vendor in accordance with SC 53 of the Contract, which permitted release of the deposit pending completion. This letter was the first time the Purchasers had referred in correspondence to cl 7.2 of the Contract. 31The Purchasers' solicitor sent a follow-up fax at 3.28 pm seeking an urgent response from the Vendor. 32A reply came from the Vendor's solicitor at 3.33 pm. The reply stated that:
The Primary Judgment 41The primary Judge, after disposing of some matters not now in issue, addressed the validity of the notice to complete given by the Vendor on 1 March 2010. His Honour gave these reasons for holding the notice to complete invalid: 54 The Notice to Complete gave less than 14 clear days for completion. Clear days are required for calculating the time allowed for completion under a Notice to Complete, and such a calculation excludes the day on which the notice was served ... To provide 14 clear days the Notice to Complete would have needed to expire no earlier than the end of Monday, 15 March. 55 Was the Notice valid having given less than 14 clear days notice? Contracts containing provisions such as special condition 52.1 have been construed to require the giving of no less than the formal notice period set out in such clauses ... In my view, the operation of special condition 52.1 required the Notice to give at least 14 clear days notice. 56 Even if that were not correct, the Notice would still be invalid if it was unreasonable in the circumstances ... Strong circumstances must be demonstrated to justify the giving of a Notice to Complete which allows less than 14 days for completion; and 13 days has been held to be unreasonable: Sindel v Georgiou (1984) 154 CLR 661 at 670. 57 This is not a case, in my view, where the circumstances in which the Notice to Complete were served would justify allowing less than 14 clear days for completion. Although Mr Velik did not ultimately take issue with the [Vendor's] failure to serve a proper Registration Notice when he agreed to completion on 26 February 2010, the confused way the [Vendor] served this Registration Notice, and the practical need for Mr Velik to make a decision about whether to accept the Notice as valid within its 14 day period, meant that contractual times were already running very tightly against [the Purchasers], who barely had sufficient time to take steps required under the contract. This situation does not incline the Court to assess a reasonable Notice to Complete to be compressed into a period under 14 clear days. 42The primary Judge then considered the events leading to the Vendor's termination of the Contract. His Honour made several findings about the respective positions of the parties on 12 March 2010:
The Notice of Contention 52It is convenient to address first the Vendor's Notice of Contention. The Vendor advanced two arguments: (1) The primary Judge erred in concluding that the notice to complete did not conform to SC 52.1 of the Contract because it did not allow 14 clear days from the date of service for completion to take place. Mr Einfeld SC, who appeared with Mr Knoll for the Vendor, pointed out that, since the notice to complete was served at 12.25 pm on 1 March 2010 and required completion by 3.00 pm on 15 March 2010, it allowed 14 periods of 24 hours each for completion to take place. He submitted that the notice satisfied the requirement in SC 52.1 that it allow "14 days from the date the notice is served". (2) Even if the primary Judge was correct to hold that the notice to complete did not satisfy SC 52.1, 13 clear days was a reasonable period in the circumstances and his Honour should have so found. It was implicit in the Vendor's second contention that his Honour was wrong to construe SC 52.1 as precluding a notice requiring completion within a period shorter than that specified in SC 52.1.
Validity of the Notice to Complete 53SC 52.1 records the parties' agreement that: fourteen (14) days from the date the notice is served will be reasonable both at law and equity for completion of the Contract pursuant to the Notice. The question of whether the notice to complete served on 1 March 2010 complied with SC 52.1 depends on the proper construction of the expression "fourteen (14) days from the date the notice is served". 54In Forster v Jododex Australia Pty Limited [1972] HCA 61; 127 CLR 421, the issue was whether an exploration licence granted for a term "from the date hereof" commenced at the beginning or the end of the specified date. Gibbs J formulated (at 440) the principle as follows: Where a written instrument requires a period of time to be computed "from" a specified date, it depends on the true construction of the instrument whether the date specified is to be included in the period. Generally speaking, however, the day from which the period runs is excluded, although there is no rigid rule to that effect, and "from" is capable of having an inclusive effect in an appropriate context. 55Gibbs J applied the "prima facie rule of construction" to conclude that the licence did not commence until the end of the day on which it was granted (at 441). Mason J took a similar approach (at 450), on the basis that the usual sense of the word "from" is that the interest created on a particular day commences at the end of that day. Walsh J relied (at 429-430) on different language in the grant, but his analysis is consistent with that of Gibbs and Mason JJ. 56In Associated Beauty Aids Pty Ltd v Federal Commissioner of Taxation [1965] HCA 20; 113 CLR 662, an authority cited by Gibbs J in Forster v Jododex, Barwick CJ considered (at 668) that the general rule is that in computing a period of time from a particular date, the period will commence at the end of the day nominated. However, his Honour emphasised that there is "no universally operating rule to that effect". Owen J expressed a similar view (at 671), pointing out that the general rule is that the law disregards fractions of a day. See to the same effect Carr v Keys-Arenas (1982) 2 BPR 9498, at 9,500 (McLelland J); at 9,502 (Samuels JA). 57It is of some importance in the present case that SC 52.1 refers to 14 days from the date of service. As Mr Einfeld accepted, the Vendor's case would have been stronger if SC 52.1 had used the word "time". Computing a period from the date of service rather than a particular time more readily invites the application of the general rule that the day on which the notice is served is excluded from the computation. This is reinforced in the present case by the provisions of the Contract that specify periods calculated by reference to the time at which a notice is given (see for example, SC 38, dealing with the time within which a right to rescind may be exercised). 58Mr Einfeld pointed out that the Contract permitted service of the notice to complete by fax (as in fact occurred) and thus there could be no difficulty about calculating whether the notice allowed 14 periods of 24 hours each between the time of service and the specified time for completion of the Contract. In my opinion, this does not provide a basis for departing from the general principle stated in the authorities, the application of which is supported by the language of SC 52.1. The authorities such as Forster v Jododex do not rest the general principle of construction upon any difficulty that might arise in proving the precise time of service of a particular notice. 59For these reasons, the primary Judge was correct to conclude that the notice to complete served by the Vendor on 1 March 2010 did not conform to the requirements of SC 52.1.
Was the Period of 14 Days a Contractual Minimum? 60The primary Judge construed SC 52.1 to require the giving of no less than the formal notice period of 14 days set out in the Special Condition. He said that provisions such as SC 52.1 had been interpreted in this way in Shaddick v Dunsford Investments Pty Ltd (1990) 5 BPR 11,322 (Young J) and in Doyle v Howey (1990) 6 BPR 13,401 (Cohen J). 61The provisions in each of the cases cited by the primary Judge were, however, different from those in the present case since they use the language of "deeming". In Shaddick, the special condition stated that a period of 14 days is "deemed to be and will at all times be accepted as being valid sufficient and reasonable period of notice". In Doyle v Howey, the special condition used the expression "deemed to be reasonable and sufficient notice". Cohen J also considered that this provision had to be read with a more comprehensive clause relating to completion of the contract that has no equivalent in the Contract in this case. 62I agree with the observation of McLelland J in M & L Hazelton Pty Ltd v Woodfield (1982) 2 BPR 97144 at 9,559, that it is necessary in each case to have regard to the precise language used by the particular provision and that the temptation to adopt a "broad-brush" approach must be resisted. Even so, it is noticeable, as Campbell JA pointed out in Zaccardi v Caunt [2008] NSWCA 202; 15 BPR 28,403, at [83]-[85], that provisions having a "family resemblance" to each other have been given different interpretations. 63SC 52.1 provides that if either party is entitled to serve a notice to complete making time of the essence, both parties agree that 14 days from the date of service will be reasonable both at law and in equity for the completion of the Contract pursuant to the notice. This language is by no means unequivocal, but it tends to suggest that SC 52.1 is intended to define the minimum period required for a notice to complete to make time of the essence. 64This construction of SC 52.1 receives support from the contractual context. The opening words of SC 52.1 refer back to cl 15 ("[i]n the event that either party becomes entitled to serve a Notice to Complete"). The two provisions, read together, establish a procedure for making time of the essence under the Contract once the "completion date" has passed. The notice to complete contemplated by cl 15 is one that satisfies the requirements of SC 52.1, in that it allows 14 clear days for completion to take place. 65Clause 21.1 of the Contract also suggests that SC 52.1 is intended to provide an exhaustive statement of what constitutes a reasonable period for a notice to complete under the Contract. Clause 21.1 says that if the time for something to be done or to happen is not stated in the Contract, it is a reasonable time. SC 52.1, when read with cl 15, does state a time for something to happen, namely the time at which completion is to take place in conformity with a notice to complete issued under the Contract. Thus, cl 21.1 does not permit a notice to complete to provide a "reasonable time" less than 14 days. While cl 21.1 does not expressly prohibit a notice to complete which specifies a period less than 14 clear days, the better view is that when cl 21.1 and SC 52.1 are read together, a valid notice to complete must allow 14 clear days for completion. 66The notice to complete in this case allowed only 13 clear days for the Purchasers to complete the sale. Even if that period was otherwise reasonable, on the proper construction of SC 52.1, the notice to complete was invalid.
A Reasonable Period? 67Since I have concluded that the notice to complete was invalid under the Contract, it is not necessary to consider whether the primary Judge was correct to find that, in any event, the period allowed by the notice to complete was not reasonable. Had it been necessary to do so, however, I would not have interfered with his Honour's finding. 68The historical background to the principles governing whether a notice to complete allows a reasonable time is thoroughly canvassed by Campbell JA (with whom Allsop P and Barr J agreed) in Zaccardi v Caunt at [87]-[93]. In considering whether the time limited by a notice to complete is reasonable, the Court will consider all the circumstances of the case as they existed at the time the notice was given: Stickney v Keeble [1915] AC 386, at 419, per Lord Parker of Waddington; Sindel v Georgiou [1984] HCA 58; 154 CLR 661, at 669, per curiam. For a list of factors that have been taken into account in particular cases on the question of reasonableness, see P Butt, The Standard Contract for Sale of Land in New South Wales (2nd ed, 1998), at [15.26]. 69In Sindel v Georgiou, the High Court upheld a finding that a period of 13 days allowed by a vendor's notice to complete was insufficient. The Court acknowledged (at 670) that in Ajit v Sammy [1967] 1 AC 255, the Privy Council held that 6 days notice was sufficient in the particular circumstances of that case. Nonetheless, the High Court considered that: strong circumstances must be shown to justify the giving of a notice to complete which allows less than fourteen days for completion. The High Court also observed that the determination of what is a reasonable period is very much a matter of impression. 70The primary Judge did not mis-state any of the relevant principles governing the reasonableness of the period allowed in a notice to complete. His Honour took into account the uncertainty concerning the manner in which the Vendor served the Registration Notice (relating to the sub-division of the land) and that contractual times were running tightly against the Purchasers. His Honour was entitled to take these matters into account. 71It is true that in the letter of 25 February 2010, which was sent prior to service of the notice to complete, that the Purchasers said that they were "only likely" to be able to settle on 5 March 2010, four days after the service of the notice to complete. However, the Purchasers did not unequivocally state that there would be no further issues to be resolved with their lender prior to completion and further issues did in fact arise. Since the Purchasers had previously encountered difficulties that prevented them settling on the "completion date" of 26 February 2010, I do not think their statement in the letter of 25 February 2010 constituted "strong circumstances" justifying a notice specifying a period for completion shorter than 14 clear days. 72For these reasons, had it been necessary to do so, I would not have disturbed the primary Judge's finding that the period for completion allowed by the notice to complete was not reasonable.
Breach of SC 55.1 73The primary Judge appears to have found that the Purchasers committed an anticipatory breach of SC 55.1, although his Honour did not use that terminology. His Honour took the view that, since SC 55.1 is expressly made an essential term of the Contract by SC 55.3, the Purchasers' conduct constituted a "repudiation" of an essential term of the Contract. The Vendor was entitled to accept that repudiation, thereby terminating the Contract. 74The Vendor's written submissions supported the primary Judge's findings. The Vendor contended that SC 55.1 is unambiguous and that the Purchasers' conduct on 12 and 15 March 2010 constituted an anticipatory breach of an essential term of the Contract. 75The Purchasers submitted in response that both the primary Judge and the Vendor's submissions mischaracterised the Purchasers' conduct. They had never refused to pay the interest due under SC 55.1. On the contrary, so the Purchasers argued, Mr Velik had in his possession on both days bank cheques for the full amount due under the Contract, inclusive of interest calculated in accordance with SC 55.1. The Purchasers' intention on both 12 and 15 March 2010 was to pay the full amount due under the Contract, but only if the Vendor agreed to pay the amount in dispute to the agent as stakeholder, pursuant to cl 7.2 of the Contract. Thus, there was neither an actual breach of SC 55.1, nor an anticipatory breach of that provision. 76In his oral submissions in this Court, Mr Einfeld argued that the Purchasers had breached SC 55.1, by which I understood him to mean an actual, as distinct from anticipatory breach. He submitted that the obligation to pay interest arose on 15 March 2010. When asked why that was so, given that SC 55.1 says nothing about the time at which interest was payable (as opposed to the manner in which interest was to be computed), Mr Einfeld said that SC 55.1 had to be read with cl 16.7. It was the latter clause that specified the obligations of the Purchasers on settlement. He submitted that the obligations imposed by cl 16.7, including the requirement to pay interest calculated in accordance with SC 55.1, had been enlivened by the parties' agreement to settle on 15 March 2010. Mr Einfeld pointed out that this argument had been put to the primary Judge, although his Honour apparently did not consider it necessary to address the argument. 77The shift in the Vendor's position in this Court between the written submissions and the oral argument acknowledged that SC 55.1 does not expressly identify the time at which the Purchasers are obliged to pay interest to the Vendor computed in accordance with SC 55.1. SC 55.1 confers an additional "right" on the Vendor, if completion does not take place on the "completion date" (26 February 2010), provided the Vendor is willing and able to complete. The "right" conferred by SC 55.1 is the entitlement to an amount of interest calculated in the manner described by that provision - that is, by reference to the period between the completion date and the "actual date of completion". 78The absence of any reference in SC 55.1 to a date for payment of interest is explicable by the terms of cl 16.7 of the Contract. It is that provision which obliges the Purchasers on completion to pay the price, plus any other amount payable by them under the Contract. Given the presence of cl 16.7 in the Contract, there is no need for SC 55.1 to deal separately with the time at which the Purchasers obligation to pay interest arises. Clause 16.7 requires the Purchasers to pay to the Vendor any amount payable by them under the Contract on completion. SC 55.1 states the formula by which the amount of interest payable by the Purchasers is to be ascertained. 79On both 12 and 15 March 2010, the Purchasers were in a position to pay the full amount due under the Contract, inclusive of interest. More importantly for present purposes on 15 March 2010, they refused to pay any amount at the settlement unless the Vendor agreed to pay the disputed sum to the agent as a stakeholder, in accordance with cl 7.2. 80If the Purchasers were correct in their reliance on cl 7.2, they were entitled to refuse to complete on 15 March 2010. On this hypothesis, the Vendor was refusing to comply with cl 7.2.1, which required the amount claimed by the Purchasers to be paid to a stakeholder. If, however, the Purchasers were incorrect (as the primary Judge held), their breach was not of SC 55.1 (there being no question as to quantum), but of cl 16.7. That follows from their refusal to pay both the purchase price and any other amount payable under the Contract, including interest calculated in accordance with SC 55.1. But the Purchasers' breach of cl 16.7, of itself, did not entitle the Vendor to terminate the Contract since the Vendor's notice to complete of 1 March 2010 was invalid. Accordingly, time was not yet of the essence of the Contract and, subject to the Vendor's argument concerning the Purchasers' repudiation of the Contract, their refusal to pay the amounts due under cl 16.7 on 12 and 15 March 2010 did not constitute a breach of an essential term of the Contract.
Primary Judge's Reasoning 81The primary Judge gave brief reasons for finding that the Purchasers' persistence in invoking the mechanism of cl 7.2 of the Contract when they were not entitled to do so showed that they were unwilling to complete the Contract in accordance with its terms and had therefore constituted repudiation of their obligations. His Honour cited in support of this finding the judgment of Basten JA (with whom Mason P and McColl JA agreed) in Perpetual Trustee Company Ltd v Meriton Property Management Pty Ltd [2006] NSWCA 75; 15 BPR 28,323, at [21], [26], [40]. 82It is not entirely clear what principle the primary Judge sought to derive from Perpetual Trustee v Meriton. However, the passages cited by his Honour suggests that he may have regarded the decision as authority for the proposition that a party who insists on an interpretation of a contract that turns out to be incorrect should be regarded as unwilling to perform the contract in accordance with its terms. 83As Mr Balafoutis, who appeared with Mr Stretton for the Purchasers, submitted, if this was his Honour's view, it was not supported by Basten JA's reasoning. Perpetual Trustee v Meriton involved a contract for the sale of land, but the issue was not whether one party had repudiated the contract. The parties had completed the contract, but had set aside a fund sufficient to meet competing claims by the parties to interest. The resolution of the dispute turned on whether the purchaser, during a particular period, had been "unable or unwilling to complete the contract" within the meaning of the relevant provision in the contract. 84Basten JA pointed out (at [55]) that the case did not turn on the general principles relating to repudiation, but on the construction of a particular contractual provision intended to impose a financial burden on the party responsible for delay in completing the contract. It follows that Perpetual Trustee v Meriton is of little assistance in deciding whether the Purchasers in the present case engaged in repudiatory conduct: see also Basten JA's observations at [52].
Principles 85The principles relating to repudiation, insofar as relevant to this case, are not in dispute. In Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115, the plurality said (at [44]) that one way the term "repudiation" is used is to: refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party's obligations [Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623 at 634 per Mason CJ]. It may be termed renunciation [Heyman v Darwins Ltd [1942] AC 356 at 397]. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it [Laurinda Pty Ltd v Capalaba, at 659 per Deane and Dawson JJ]. 86Koompahtoo Council v Sanpine, as the plurality noted (at [44]), was not concerned with issues that arise when the alleged repudiation takes the form of one party asserting an erroneous interpretation of a contractual provision. However, the authorities establish a number of principles relevant to such a case. A convenient statement of "some of the key principles" is to be found in the judgment of Ashley JA (with whom Kellam JJA, and Osborn AJA agreed) in R & A Cab Co Pty Ltd v Kotzman [2008] VSCA 68, at [44]-[49]. What follows is in part drawn on that statement:
Application of Principles 88Between 25 February 2010 and 15 March 2010, the Purchasers persisted in their contention that they were not required to pay interest under SC 55.1, to the extent that the amount of interest exceeded the rental payable by them in respect of the same period. At first, the Purchasers did not quantify the precise amount of interest said to constitute an unenforceable penalty. Nor did they say exactly what they would do if the Vendor did not agree with their interpretation. In the letters of 25 February, 3 March and 11 March 2010, the Purchasers stated their intention of paying interest, but only to the extent that the interest payable in respect of the period exceeded the rental payable in respect of the same period. 89It was not until the fax sent at 2.18 pm on 12 March 2010 that the Purchasers invoked cl 7.2 of the Contract and quantified the amount in dispute. In that letter the Purchasers required the sum of $2,200.00 to be retained by the Vendor pursuant to cl 7.2, pending finalisation of their claim. They did not expressly state that they would not complete the Contract unless the Vendor agreed to their demand, although that may have been implicit given that the Vendor was insisting on the Purchasers paying the full amount of interest on completion. 90The second email sent by the Purchasers early on 15 March 2010 repeated the claim that the Vendor was required under cl 7.2 to set aside $2,200.00 from the deposit moneys. The email added a claim that the amount to be set aside should be increased by $932.05 to take account of the additional interest charged by the Vendor by reason of the further delay in completion and the new claim by the Purchasers that the Vendor had not been ready, willing and able to complete on the afternoon of the previous Friday, 12 March 2010. Once again, the email did not state expressly that the Purchasers would not complete unless the Vendor agreed to set aside the amount in dispute in accordance with cl 7.2 of the Contract. 91I have set out earlier the primary Judge's account of the communications and events that took place on Monday, 15 March 2010. His Honour's finding, which has not been challenged, was that after a number of attempts to resolve the issue on that day, Mr Velik's final communication to Ms Marrone, the Vendor's representative, was that the Purchasers would hand over the cheques if the Vendor agreed to set aside the disputed amount. This the Vendor refused to do. 92If there were no other relevant circumstances, this finding, coupled with the undisputed holding that the Purchasers were not entitled to invoke cl 7.2 of the Contract, might suggest that they were prepared to complete the Contract only in a manner inconsistent with their obligations and in no other way. However, there are other circumstances that must be taken into account. 93First, the primary Judge made no finding that the Purchasers acted otherwise than in the good faith belief that they were entitled to rely on cl 7.2 of the Contract. The Court was not taken to any evidence suggesting that Mr Velik did not honestly, albeit mistakenly, believe that the Purchasers had a genuine claim that the obligation to pay interest was unenforceable to the extent that it constituted a penalty. Nor were we taken to evidence suggesting that Mr Velik did not honestly believe that cl 7.2 applied to the Purchasers' claim and thus required the Vendor to follow the procedure outlined in that provision. 94Secondly, the primary Judge held as a matter of law (at [126]-[135]) that the Purchasers' reliance on cl 7.2 was excluded by the plain language of SC 37.1 of the Contract. However, his Honour also found (at [133]) that the Vendor did not "deploy" SC 37.1 at the time she terminated the Contract and, indeed, did not do so until shortly before the trial. 95The primary Judge held that the failure of the Vendor to rely on SC 37.1 at the time of termination of the Contract did not prevent her doing so at the hearing. No doubt that conclusion was correct, but the failure of the Vendor to communicate to the Purchasers the fatal barrier to their invocation of cl 7.2 is a significant factor in determining whether the Purchasers evinced an intention not to be bound by the Contract. At no time prior to the Vendor's acceptance of the Purchasers' "repudiation" did the Vendor state clearly the ground on which she primarily relied at the hearing to establish that the Purchasers were not entitled to rely on cl 7.2 of the Contract. 96The third point is related. Mr Velik asked Ms Marrone at about 1.30 pm on 15 March 2010 why the Purchasers' claim was disputed. Mr Velik was clearly made aware by the previous correspondence that the Vendor considered that there was no relationship between the obligation to pay rent and the obligation under the Contract to pay interest. But he had never been told that the Vendor relied on SC 37.1 to exclude the operation of cl 7.2. Furthermore, Mr Velik told Ms Marrone that once he understood the Vendor's argument, he would be prepared to reconsider his own position. The inference is available that if the difficulty had been drawn to Mr Velik's attention, he would have reconsidered whether he was entitled to invoke cl 7.2, particularly given the likely consequences of the Purchasers refusing to complete the Contract. 97Fourthly, the Purchasers were correct in their assertion that the notice to complete given on 1 March 2010 was invalid and that the Vendor was incorrect in insisting that the notice had been validly served in accordance with the Contract. The absence of any explanation by the Purchasers in the correspondence of the basis for their assertion does not alter the fact that completion on or before 15 March 2010 had not been made an essential term of the Contract. There was still time for the Purchasers to reconsider their position and to tender the full amount due, had the Vendor communicated the legal basis of her contention that cl 7.2 was not available to the Purchasers. 98Fifthly, the Purchasers' position that the obligation to pay interest was, in part, an unenforceable penalty may not have been well-founded, but it was not wholly implausible. The general principle of equity was that a vendor was not entitled to both interest on the purchase price and the rent and profits derived from the land between the completion date under the contract and actual completion. However, the equitable principle gave way to a contractual provision having the contrary effect: Terry v Merriview Pty Ltd [1983] 2 VR 548, at 549-550, per Starke J (with whom Marks J agreed); at 551, per Crockett J. In Killarney Investments Pty Ltd v Macedonian Community of Western Australia Inc [2007] WASCA 180, EM Heenan AJA thought (at [88]), without finally deciding the point, that a vendor's contractual entitlement to interest on the purchase price might amount to an unenforceable penalty, if disproportionate to the loss actually sustained by the vendor. There is also authority suggesting that it is at least arguable that a party whose honest error is not in the interpretation of a contractual provision, but in the application of an equitable principle to the contract (such as a claim to a set-off), may rely on the error to show that he or she has not evinced an intention no longer to be bound by the contract: Cab Co Pty Ltd v Kotzman, at [50]-[51]. 99As the authorities make clear, all the circumstances of a case must be considered and, of course, each case will depend upon its own circumstances. The facts of DTR Nominees v Mona Homes, for example, were different from those of the present case, since the vendor's construction of the contract had never been disputed at the time the vendor acted in a manner said to constitute a repudiation of the contract. In the present case, by contrast, the Purchasers were aware from the time they first asserted their claim that the Vendor disputed their entitlement to withhold a portion of the interest payable under SC 55.1. 100Nonetheless, the factors that I have identified lead to the conclusion that the Purchasers, despite their obstinacy, had not evinced an intention by 15 March 2010 no longer to be bound by the Contract or to insist on performing the Contract only in accordance with their erroneous interpretation, regardless of the true construction of the Contract or of the correct position at law and in equity. 101The Purchasers' claim that the Vendor was not entitled to $932.05 in interest in respect of the period 13-15 March 2010, perhaps falls into a somewhat different category. This claim was based on Mr Velik's assertion early on 15 March 2010 that the Vendor had not taken sufficient steps to facilitate completion on the previous Friday. The assertion was robustly rebutted in the Vendor's email sent at 9.34 am on the Monday morning. Nonetheless, Mr Velik maintained his claim at the meeting with Ms Marrone that the sum of $932.05 should be subject to the regime set out in cl 7.2 of the Contract. 102The Purchasers' claim that the Vendor was not ready, willing and able to settle on 12 March 2010 was implausible, once the Vendor provided a clear explanation of why completion could not have been rescheduled for later on the Friday afternoon. However, the amount involved in the Purchasers' additional claim was very small, taking account of the fact that over half of the claim ($471.43 of the claimed sum of $932.05) was covered by the Purchasers' contention that part of the interest due under SC 55.1 constituted an unenforceable penalty. 103I did not understand the Vendor to submit that the Purchasers had evinced an intention not to be bound by the Contract solely by reason of their misplaced claim that the Vendor had not been in a position to complete the Contract on Friday 12 March 2010. Having regard to the fact that this issue arose only on the morning of 15 March 2010 and to the other matters to which I have referred, (including the absence of a valid notice to complete), I do not think that the Purchasers' claim to withhold an additional $471.43 over and above the amount said to be an unenforceable penalty justifies a finding that they did not intend to be bound by the terms of the Contract. 104For these reasons, the primary Judge was in error in concluding that the Purchasers had repudiated the Contract on 15 March 2010 and that the Vendor was entitled to accept their repudiation and to terminate the Contract.
Return of Deposit 105There was no dispute that if the Vendor was not entitled to terminate the Contract on 15 March 2010, the Purchasers were entitled to the return of their deposit. There is therefore no need to consider whether the primary Judge was correct, on the findings he made, to refuse to make an order in favour of the Purchasers under s 55(2A) of the Conveyancing Act for the return of the deposit. 106Since that issue would have to be approached on the basis of different findings and holdings than those I have made, I do not think it appropriate to express a concluded view as to whether the primary Judge's discretion miscarried. It is enough to say that, on his Honour's findings, it would be difficult to conclude that his discretion had miscarried.
Orders 107The appeal should be allowed. The orders made by the primary Judge on 4 September 2012 and 29 October 2012 should be set aside. 108The Purchasers' Notice of Appeal seeks an order that the sum of money received by the Vendor from the interest bearing account in the joint names of the parties, pursuant to the orders made by the primary Judge on 4 September 2012, be paid to them, together with an unspecified amount of interest. The Purchasers should be directed to bring in Short Minutes of Order within seven days. If the Vendor disputes the proposed orders, she should file alternative Short Minutes of Order, together with brief submissions in support. 109Unless there is some reason for different costs orders to be made, the Short Minutes of Order should incorporate the following orders:
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 September 2013
Stephen Wayne Velik
Noreen Steingold
[1972] HCA 61
[2007] WASCA 180
[2008] VSCA 68
(1992) 27 NSWLR 326
(1984) 154 CLR 661
(1938) 61 CLR 286